Introduction
Eco World Development (ECW) has made a significant move by acquiring a sizeable landbank in Semenyih. This acquisition is key to replenishing their depleting landbank and strengthens their strategic position in the southeast of Klang Valley. This article delves into the details of this acquisition, its fair pricing, future profitability, and the implications for Eco World Development’s growth trajectory.
Sizeable Land Acquisition in Semenyih
Eco World Development’s 81%-owned subsidiary, Mutiara Balau S/B (MBSB), has entered into two conditional Sale and Purchase Agreements (SPAs) to acquire 847.3 acres of freehold agricultural land in Semenyih for MYR742.4 million (or MYR20.1 per square foot). This acquisition follows their participation in a request for proposal initiated by Boustead Properties Bhd (BP), which will retain a 19% stake in MBSB. The strategic location of this land next to ECW’s existing Eco Forest project makes it a valuable addition to their portfolio.
Fair Pricing and Market Comparison
The land cost of MYR20.1 per square foot is 11% higher than the last transacted price of MYR18 per square foot paid by Mah Sing in June 2023, but it remains below the current asking prices of MYR25-30 per square foot for smaller plots (2-16 acres) in the Broga area. This acquisition will boost ECW’s landbank and Gross Development Value (GDV) by +27% and +9% respectively, bringing their total landbank to 3,941 acres and GDV to MYR55.5 billion.
Profitability and Future Contributions
Assuming a pretax margin of 20% and a 10-year development period, the Eco Forest 2 project is expected to generate an annual net profit of MYR56.6 million (1.9 sen) from FY26 onwards. This projection is based on back-of-the-envelope calculations and highlights the potential for positive surprises from securing additional land deals with data center operators for ECW’s industrial parks in Kulai and Klang Valley.
Share Price and Market Performance
As of November 8, 2024, Eco World Development’s share price stands at MYR1.81, with a 12-month price target of MYR1.96, representing an 8% upside. The share price has seen significant growth, with a 71% increase over the past 12 months, outperforming the Kuala Lumpur Composite Index by 53% over the same period.
Company Description and Key Statistics
Eco World Development is principally involved in the property development business, with projects across Malaysia, including Klang Valley, Penang, and Johor. The company’s 52-week high/low is MYR1.88/MYR1.00, with a market capitalization of USD1.2 billion (MYR5.3 billion) and a free float of 32.9%. Major shareholders include Syabas Tropikal Sdn. Bhd. (9.4%), Liew Kee Sin (7.5%), and Eco World Development Holdings Sdn. Bhd. (2.1%).
Financial Performance and Forecasts
Eco World Development has demonstrated strong financial performance, with revenue growth from MYR2,044 million in FY22 to an estimated MYR3,338 million in FY25. EBITDA is projected to increase from MYR341 million in FY22 to MYR574 million in FY25. Core net profit is expected to grow from MYR231 million in FY22 to MYR416 million in FY25. The company has also maintained a healthy balance sheet with declining net gearing from 31.4% in FY22 to an estimated 22.3% in FY25.
ESG Commitment and Sustainability Initiatives
Eco World Development scores above average in Maybank’s proprietary ESG scoring methodology, with an overall score of 69/100. The company is committed to sustainability, with initiatives such as installing electric vehicle charging stations, achieving green certification for 89% of its projects, and repurposing excess materials to minimize waste. ECW has also targeted to allocate at least 15% of the total area to open green spaces, achieving 22% in FY23.
Corporate Governance and Social Responsibility
ECW’s Board comprises 11 members, including 4 female directors (36%) and 3 Bumiputera directors. The company follows stringent corporate governance practices, with policies aligned with the Malaysian Anti-Corruption Commission Act 2009. ECW has a strong focus on social responsibility, providing monetary assistance to students and contributing MYR2.7 million to various CSR programs in FY23.
Quantitative and Qualitative ESG Parameters
Eco World Development has shown progress in various quantitative ESG metrics, including a reduction in GHG intensity and an increase in waste recycling. The company’s workforce consists of 45% women, with an average of 26 training hours per employee in FY23. ECW has also achieved zero workplace fatalities and a low Lost-Time Incident Rate (LTIR) of 0.014 in FY23.
Future Outlook and Risks
While the outlook for Eco World Development is positive, there are several risk factors to consider. These include a potential slowdown in the property sector, higher-than-expected losses from its 29%-owned associate Eco World International, and regulatory or policy changes. However, the company’s strategic land acquisitions and strong financial performance position it well for future growth.
Conclusion
Eco World Development’s latest land acquisition in Semenyih is a strategic move that strengthens its position in the market and replenishes its landbank. With a fair pricing strategy, robust profitability forecasts, and a strong commitment to ESG principles, ECW is well-positioned for future growth. Investors can look forward to continued success and potential positive surprises in the coming years.
